I hate doing “predictions” articles, but every year, a couple of the publications I write for ask for one. When the inevitable request came in this year from Auto Dealer Today, I decided that it might be fun to do a bit of a variation on the theme and instead of looking forward, take a look back to see how we did with last year’s predictions.
In December 2017 predictions article, I asked three Hudson Cook lawyers, whose practices are heavily into auto sales, finance, and leasing, for their thoughts on future developments and then added my own.
For this article, I asked each predictor to do a “self-grading” of last year’s submissions to see how well or poorly we did.
Patty Covington (four correct, two incorrect):
• Cybersecurity threats will continue, with follow-up litigation and state regulation. Correct. Many states tweaked their security breach laws, two states added a security breach notice law, and California passed the Consumer Privacy Act of 2018.
• State attorneys general will continue their upward trend of challenging perceived misbehavior in the credit industry, and other state regulators will continue to be more assertive and aggressive in examination — requiring more changes in creditors’ practices and extracting larger fines. Correct. We’ve seen more attorney general enforcement settlements and even more investigations initiated and in progress. We’ll see how this plays out in 2019.
• Ancillary products will continue to be challenged, starting with GAP. Correct, and still developing. States continue scrutinizing GAP refunds in the exam context, and the Consumer Financial Protection Bureau settled an enforcement action on GAP with a large sales finance company.
• “Wrongful” repossessions will be challenged, and the CFPB’s focus on these will intensify. Correct. “Wrongful” repossessions are discussed in the CFPB’s 2018 Summer Supervisory Highlights.
• Selling over the Internet may get more attention, not because of any existing scrutiny but because there’s a whole lot more activity in this realm and it’s more public (e.g. TV commercials). It’s a critical mass thing. Incorrect, at least for now. I suspect this will come to fruition in the next five years.
• The wide price variances charged for the same ancillary product will be scrutinized by state and federal regulators (i.e. the Federal Trade Commission, attorneys general) and perhaps by finance companies. Incorrect. This is good news for the industry, and a tough putt for regulators, because it’s perceived government “price-fixing.” But don’t forget about the Equal Credit Opportunity Act; despite repeal of the CFPB’s Auto Finance Bulletin, the ECOA is still alive and kicking.
Eric Johnson (four correct, one mostly correct):
• State AGs and state regulators will pick up the perceived slack in CFPB enforcement, particularly in the blue states. Correct. States picked up any perceived slack in CFPB enforcement with increased enforcement actions by AGs and increased examinations by state regulators.
• Auto finance examinations will continue, and most issues will be handled in the examination process rather than in enforcement. Correct. Auto finance examinations continued in 2018 and, for the most part, issues were handled in the examination process rather than in enforcement.
• Examinations will continue to focus on repossession practices. Correct. The CFPB’s latest Supervisory Highlights (Summer 2018) included a lengthy discussion on wrongful repossessions that the bureau reportedly found in one or more recent examinations.
• The FTC will continue to go after bad actors in the auto industry, particularly auto dealers. Look for continuing efforts to curb advertising practices (remember “Operation Ruse Control” and “Operation Steer Clear”?) and more actions targeting dealers for bogus “nothing down” ads. Mostly correct. In July, the FTC and 12 “partner agencies” conducted a compliance sweep of 94 used car dealerships in 20 cities for compliance with the FTC’s Used Car Rule to ensure that they displayed the revised buyers guide. In August, the FTC filed its first action against four affiliated dealerships, their owners, president, and manager for allegedly falsifying consumers’ income and down payment amounts.
• Ancillary products will continue to be a focus of CFPB enforcement actions alleging unfair, deceptive, or abusive acts or practices or, more likely, of state regulators making similar claims. Correct. In November, the bureau announced a settlement with a vehicle financing company for allegedly engaging in deceptive acts and practices in connection with the marketing of a GAP product.
Nikki Munro (three correct, two incorrect):
• Confusion will reign for some time at the CFPB, but examinations likely will continue. Correct. Auto finance examinations continued in 2018, and issues were handled mostly in the examination process, not in enforcement.
• If the CFPB becomes inactive in the enforcement department, or reduces enforcement activities, state AGs will step in. Correct. On March 1, then-acting director Mick Mulvaney encouraged state AGs to take the lead on enforcement.
• State legislatures will continue to enact “mini-CFPBs” (e.g. Maryland’s creation of a reporting group and the Pennsylvania agency, which has some teeth). Not accurate. I don’t believe we’ve seen more mini-CFPBs, but we have seen states enact Consumer Financial Protection Acts (see MD HB 1634 and SB 1068).
• New York City just enacted a car buyer’s bill of rights. We might see more cities or states do the same. Not accurate. We have not seen a big uptick in auto finance legislation or state car buyers’ bills of rights, but I suspect more will come in the future.
• Ancillary products will continue to be a focus of UDAP/UDAAP. Look for claims based on price gouging, discrimination, and payment packing. Correct. In November, the bureau announced a settlement with a vehicle financing company for allegedly engaging in deceptive acts and practices in connection with the marketing of a GAP product. Also, states are looking more closely at refund issues.
And last, but not least, here are mine (two correct, two incorrect, one half correct):
• Protection of servicemembers by the CFPB, the Justice Department, and state regulators — even a pro-industry administration won’t lose any political support by standing up for our men and women in uniform. Judging from the inaction by the Department of Defense on the ancillary products mess, I’d say this one’s correct.
• A long-overdue crackdown by the FTC on dealer print, TV, and radio ads that use “mouse type” or the equivalent radio technique to make required credit and lease disclosures. Didn’t happen, so this one’s incorrect. I’d double down on it for next year, though.
• Enforcement actions against buy here, pay here dealers asserting that their car prices are unconscionably high or that some part of the purchase price is a “hidden” finance charge. Correct. There were several actions by regulators in 2018 dealing with these allegations.
• A focus on dealership incentive-based pay plans that reward sales employees for financing and sales of ancillary products in ways regulators don’t like. This one didn’t come to pass, but I still think it has legs for 2019.
• A spread from California and Florida to other states of class action lawsuits alleging that dealers’ websites are noncompliant with the requirements of the Americans with Disabilities Act. These are essentially “strike” suits by plaintiffs’ lawyers who are looking for quick settlements by dealers whose websites are vulnerable. I didn’t see any reported decisions dealing with these issues, but I heard some stories on the grapevine. This one’s maybe half-right.
I’d call Eric the winner, with Patty next and Nikki in third place, and, as usual, I’m dragging along behind. The overall score for the team wasn’t bad: 13 correct, six incorrect, and two partly correct. Not too shabby, considering how foggy our crystal ball is.
Thomas B. Hudson was a founding partner of Hudson Cook LLP and is now of counsel in the firm’s Maryland office. He is the CEO of CounselorLibrary.com and a frequent speaker and writer on a variety of consumer credit topics. Email him at [email protected] HC No. 4849-7773-0436